Settlement Processing for New Zealand Futures and Options Margins

Overview

ASX Trade24 lists Futures and Options contracts on New Zealand interest rate securities and reference rates that allow investors and traders to gain exposure to short and long-term New Zealand asset classes. In addition, standardised and centrally cleared New Zealand Electricity Futures and Options contracts against two grid reference nodes (Otahuhu and Benmore) are traded on the Trade24 market.

All New Zealand denominated futures and options contracts are centrally cleared by ASX Clear (Futures) which assists ASX participants to more effectively undertake their clearing activity by reducing systemic risk, minimising counterparty risk and by increasing capital and operating efficiency.

NZ Margin Settlement Processing

All New Zealand Dollar denominated margins, including intraday calls, are settled through the Reserve Bank of New Zealand’s (the RBNZ) NZClear real time settlement system (the System). All ASX Clear (Futures) Participants that clear New Zealand contracts are required to be a member of NZClear.

Each NZClear member has a system cash account which is provided by a registered New Zealand bank (settlement bank) that maintains an exchange settlement account in the RBNZ’s Exchange Settlement Account System (ESAS). The bank providing the system cash account has real time access to set daylight limits (debit caps) on the account in the System.

Both ASX Clear (Futures) and its Participants must enter relevant details of the margin payment in the System. Where formal arrangements have been agreed, ASX Clear (Futures) will process the Participant’s side of a margin payment transaction. These arrangements however are currently under review.

If the details of both sides of the transaction agree, the System will “match” the settlement instruction. The transaction will remain in the matched state in the System while it is undergoing settlement processing.

Once matched, the System sends a payment request to the ESAS for the paying Bank to pay the funds to the receiving Bank’s exchange settlement account. Once the paying member Bank authorises the transfer of funds to the receiving member Bank, the ESAS sends a payment confirmation message to NZClear to continue payment processing. NZClear irrevocably settles the transaction and the cash records of the System are updated simultaneously. At this point the state will change to “Settled” indicating that settlement is complete.

Forms

Participants are encouraged to set up a Standing Settlement Instruction (“SSI”) with ASX. This allows Participant to register and store default cash payment instructions to cover their expected margin movement per the Financial Status Advice each day. The SSI can be:

1. To pay or receive the expected margin amount back to net nil or
2. Pay or receive to a specific amount of excess cash lodged with ASX Clear (Futures).

Cut-Off Times

The following deadlines (all based on Sydney time) must be met by Participants:

- Daily Cash Settlement Form (where SSIs are being varied or are not established) must be received by Clearing Operations by 9:00am.

- For cash payments from Participants to ASX Clear (Futures), the transaction details must be “matched” by 10:30am and “settled” by 11:00am

- For cash payment to Participants, the transaction details must be “matched” by 12pm

It is the responsibility of all ASX Clear (Futures) Participants to ensure the above deadlines are met and to liaise with their settlement banks directly as needed to ensure margins are settled promptly.